Merrill CEO to take fall, with $173m parachute

ONE of the world's most eminent investment bankers could be
about to lose his job over the US subprime crisis, but he would
leave with a handsome golden handshake.

The New York Times has reported the board of Merrill
Lynch is almost ready to dismiss its chairman and chief executive,
Stanley O'Neal, after Merrill last week announced a $US7.9 billion
($A8.6 billion) write-down stemming from the bank's aggressive move
into subprime mortgages.

Mr O'Neal is entitled to $US30 million in retirement benefits as
well as $US129 million in stock and option holdings ($A173 million
in total), according to an analysis by James Reda & Associates
using Friday's share price of $US66.09. That would be on top of the
roughly $US160 million he took home in almost five years on the
job.

Under Mr O'Neal, Merrill moved aggressively into lucrative
businesses such as the packaging of subprime mortgages and other
complex debt securities. That led to a string of blow-out quarters
 and blow-out paydays. Last year, Mr O'Neal's $US46.4 million
pay package made him Wall Street's second-highest paid chief
executive, behind Lloyd Blankfein of Goldman Sachs, who was paid
$US54.3 million, according to Equilar research.

"I lay the blame at the foot of the board," said Frederick Rowe,
a Dallas money manager and the president of Investors for Director
Accountability.

"He was paid a tremendous amount of money to create a loss that
is mind-boggling, and he obviously took risks that should never
have been taken."

It is unclear whether Mr O'Neal will resign. At Merrill, Mr
O'Neal worked without a severance contract and would be expected to
forfeit any options that do not come due until after he has left.
But according to the Merrill proxy, the compensation committee has
"discretion" to award severance benefits.

Mr O'Neal could walk away with an even bigger pay package if he
left after a deal to sell the company. Under Merrill's
change-in-control policy, Mr O'Neal would be entitled to a payout
of $US274 million.

On Wall Street, bad news can be transformed into good with the
same type of alchemy that transformed subprime mortgages into
investment grade securities. Even as Mr O'Neal came under fire on
Friday, investors bid up Merrill's stock by $US5.19. That gave Mr
O'Neal a paper gain of $US16 million.

Former Merrill Lynch boss Daniel Tully, who tripled the
investment bank's share price during his tenure as chief executive
in the 1990s, said the firm should rein in risk-taking after a
record third-quarter loss he described as "sickening".

Mr O'Neal said in a conference call last week that he would
consider selling "non-core assets", without being specific. The
New York Times reported on Saturday that Mr O'Neal initiated
talks about a possible merger with the North Carolina-based bank
Wachovia prior to broaching the matter with the board. Merrill
Lynch officials declined to comment on the reports.

Mr Tully said he didn't think Merrill should sell itself to a
larger bank while the stock was trading at a depressed price.
Selling assets in a "fire sale" would also be a mistake, he
said.

"You sure as hell don't want to sell something on a bailout," he
said.